SANTA CLARA, Calif.–(BUSINESS WIRE)–Echelon Corporation (ELON) today announced financial results for the second quarter ended June 30, 2016.
“Total revenues exceeded our expectations in the second quarter, lighting revenues increased sequentially and we saw solid improvement to our bottom line,” said Ron Sege, Chairman and CEO of Echelon. “Industry reports and our own customer activity both point to accelerating momentum in the adoption of outdoor connected lighting, presenting a significant opportunity for Echelon. During the quarter our embedded systems business recovered to its historical trajectory after a relatively weak first quarter. Finally, we made the decision to bring the strategic alternative evaluation process announced last August to a close, allowing us to focus fully on the opportunities in both lighting and embedded systems.”
Financial Highlights
- Revenues: $8.1 million
- Operating expenses remained historically low, down 43.0% from a year ago
- GAAP Net Loss: $571,000; GAAP Net Loss per Share: $0.13
- Non-GAAP Net Loss: $586,000; Non-GAAP Net Loss per Share: $0.13
- Cash & investments of $24.2 million
- Cash generated of $526,000 compared to a cash burn of $11.7 million a year ago
Revenues were $8.1 million in the second quarter, down from $9.4 million in the same period of 2015 and $8.6 million in the first quarter of 2016. As expected, the decrease in revenues from the first quarter of 2016 is attributable to a $1.3 million reduction in shipments to Enel. Revenues from lighting and embedded systems both grew sequentially; the latter primarily due to channel inventory dynamics. As expected, our embedded systems business is continuing its long-term decline, exacerbated by the reduction in shipments to Enel.
GAAP gross margin in the second quarter was 58.4% compared with 59.2% in the second quarter of 2015 and 55.6% in the first quarter of 2016. The fluctuations in gross margin were predominantly due to product mix and overall revenue levels.
Total operating expenses for the quarter decreased to $5.7 million from $10.1 million in the second quarter of 2015 due to ongoing cost reduction initiatives, including right-sizing of facilities. In the second quarter of 2015 we terminated the long-term leases for our corporate headquarters facility, which resulted in a one-time charge of $3.3 million. Total operating expenses during the second quarter of 2016 remained relatively flat as compared to the first quarter. Our sales and marketing expenses increased as we further enhanced our lighting-centric salesforce. We also experienced a modest increase in general and administrative expenses resulting from project related costs that we do not expect to continue going forward. These increases were offset by lower product development expenses.
GAAP net loss for the second quarter was $571,000, or $0.13 per share, compared with a net loss of $5.2 million, or $1.17 per share, in the same period last year, and a net loss of $953,000, or $0.22 per share, in the previous quarter.
Non-GAAP net loss for the second quarter was $586,000, or $0.13 per share, compared with non-GAAP net loss of $2.0 million, or $0.46 per share, for the second quarter of 2015, and $1.2 million, or $0.27 per share, in the previous quarter.
Included in both our GAAP and non-GAAP results for the second quarter of 2016 were foreign currency translation gains of $486,000. This compares to foreign currency translation losses of $422,000 in the second quarter of 2015, and of $221,000 in the first quarter of 2016. These foreign currency translation gains and losses are attributable to our foreign currency denominated short-term intercompany balances.
Customer Highlights
The following activity is indicative of the interest we are seeing in the marketplace for our outdoor lighting and embedded solutions. In addition to energy savings, customers are increasingly interested in the safety- and comfort-enhancing aspects of our control systems.
- In Bellingham, WA, our city-wide deployment of 3,615 streetlights with wireless technology on roadway lights and ‘invisible’ powerline communication on highly visible decorative luminaries was completed this quarter.
- In a large Canadian city of over a million people, we have deployed a pilot project for the first of a number of multi-level parking structures and multiple parking lots.
- At a U.S. military base in the Pacific northwest, we began a small pilot during the second quarter using our RF controllers and microwave sensors.
- In Vadnais Heights, MN, we have shipped and expect to deploy a city-wide intelligent lighting system in August. This project will serve as a showcase for adjacent suburbs and could lead to significant follow-on opportunities.
- At a Silicon Valley Fortune 100 company HQ, our successful adaptive lighting pilot program has led to an order for installation across a complete garage and deployment is currently underway. Importantly, in addition to energy savings, this system can enhance safety and comfort through our ‘predictive path’ feature that brightens the way for cars and pedestrians. In the U.S., nearly 1 in 10 violent and property crimes occur in parking facilities according to the Business of Justice Statistics as do a staggering 1 in 5 motor vehicle accidents.
- The Port of Seattle, which manages the physical port, marinas and Sea-Tac airport, among other facilities, has ordered and plans to install our RF lighting controllers and microwave sensors into the Shilshole Marina.
- In the city of Bloemfontein, South Africa, a partner of Echelon’s has installed a 3,000 light project using its outdoor lighting controllers, based on Echelon powerline technologies, with 45 of Echelon’s SmartServers along with 40 Street Light Bridges. This initial project has expanded to include another 1,000 lights and SmartServers, which have already been shipped and are scheduled to be installed during the third quarter.
- This quarter we rolled out four new deployments at four automotive dealerships and continue to focus on national, independent and large automotive dealerships. We believe this is a promising vertical market, at an estimated $350 million potential opportunity in U.S. alone.
- In our embedded business, we won a project to install new card readers in gas dispensers for a gas pump distributor. We anticipate substantial growth in this market due to the implementation of the EMV Liability Shift, which requires that gas station merchants install chip readers in their gas dispensers by October 2017.
Product Highlights
- Cloud and enterprise central management system (CMS)
- This quarter we added new capabilities for intelligently managing lighting using our popular building management systems. These provide customers with a ‘single pane of glass’ to manage multiple aspects of their buildings, including HVAC and lighting. This can lower training costs and capex outlays.
- The LumInsight Desktop v5.1 CMS can now manage wired and wireless outdoor lighting applications with easy-to-use software and improve site diagnostics tools for performing ‘health checks’ on large multi-site installations from a single dashboard. Lumewave by Echelon® provides cities and municipalities with this hybrid capability for integrating roadway lights with decorative, tunnel and parking structures through the LumInsight Desktop, which is currently being deployed in customer field trials.
- Multi-protocol, multi-technology gateways
- The BACnet® Gateway Interface is now available for Lumewave by Echelon wireless RF control systems. This two-way BACnet interface also allows existing business automation systems to communicate with and coordinate control of lighting systems for facility-wide energy management and operations through a system dashboard. The BACnet Gateway Interface is currently being deployed in customer trials.
Sales & Marketing Highlights
- Echelon’s Lumewave Powerline-RF Gateway was recently awarded inclusion in the Illuminating Engineering Society (“IES”) 2016 Progress Report. Along with other recipients of this award, we will be recognized in late October at the IES Annual Conference. Progress Report winners will also be recognized in the January issue of LD+A magazine, the Society’s publication, which is a gold winner for general excellence in publishing and one the world’s most acclaimed business-to-business magazines.
- Rita Renner, LEED® GA, Director of Global Marketing at Echelon, has been selected to moderate a panel on the Challenges and Rewards of Smart Outdoor Lighting at this year’s IES Annual Conference. Panelists will be addressing the opportunities and challenges of outdoor lighting focusing on acceptance and validation points.
- We continued to add sales people with solid lighting experience and strong industry contacts to our dedicated lighting sales team. Already, they have contributed to our lighting pipeline and longer-term, we expect sales to ramp as we extend our market reach and further penetrate key verticals.
Corporate Updates
- As reported on a Form 8-K filed with the Securities and Exchange Committee today, we announced that our Audit Committee has decided to change our Independent Registered Public Accounting Firm from KPMG LLP (“KPMG”) to Armanino LLP in order to lower our annual audit fees, which we expect could be reduced by at least 50% from current levels. This decision is part of our overall strategy to reduce costs and in no way results from any disagreements with KPMG or reportable events that would require disclosure.
- On August 6, 2015, we announced that our Board of Directors had formed a Strategic Committee of independent directors to identify and evaluate the feasibility and relative merits of various financial strategies, including the possible purchase of third party assets, combinations or sale of our company or its assets, and to compare such strategies to our prospects as a stand-alone entity. We engaged Goldman Sachs as our financial advisor in support of these activities. As part of this process, we engaged with a number of potential strategic and financial acquirers and investors, conducted due diligence on our business and engaged in discussions with us regarding potential transactions. After weighing the various opportunities and risks facing us, our Board of Directors and the Strategic Committee concluded that our most attractive option would be to draw the formal evaluation process to a close and continue to pursue our business as a stand-alone entity, particularly in light of the progress we have made in the past year in building and bringing to market a comprehensive networked lighting control solution, developing a lighting-focused sales team, and refreshing our embedded systems product line.
Industry Updates
- While somewhat controversial, the American Medical Association recently adopted an official policy statement about high-intensity street lighting and issued guidelines on how communities can choose LED streetlights to “minimize potential harmful human health and environmental effects.” This comes in response to the adoption of LED street lighting sweeping the country. Among other concerns, the AMA noted street lighting should have a low color temperature. Echelon’s controls systems can help address these concerns and, with only 10% of existing US street lighting converted to LED, we believe the opportunities are significant.
Outlook
Echelon’s guidance for the third quarter of 2016 is as follows:
- Total revenues are expected to be $8.0 million to $8.4 million
- Gross margin is expected to be in a range of 55% to 57%
- Operating expenses are expected to be in a range of $5.8 million to $6.0 million
- GAAP loss per share is expected to be between $0.24 and $0.36, based on 4.4 million fully diluted weighted average shares outstanding
- Excluding expected non-cash equity compensation charges of $0.04 per share, non-GAAP loss per share is expected to be between $0.20 and $0.32